The 4R Value Proposition

Inventory is the lifeblood of a retailer’s business. Getting the right product, at the right price, to the right place at the right time has been Job One for retailers from the day the first store opened. And while technology has made it easier to manage the scale of the problem, it still seems to leave unanswered the perennial inventory dilemma: “How much inventory is enough?”

Many retailers go through endless cycles of raising inventory to drive in-stocks or lowering inventory to get better turns because they don’t have a way of connecting their inventory and supply chain decisions to profitability.

For the first time, retailers can now manage their inventory policy to a profit goal. 4R Systems’ PROFIT OPTIMIZED INVENTORY solutions provide retailers with a fast, efficient and proven way to align their inventory and supply chain execution to deliver profitability. 4R clients have seen over 200 basis point improvements in profitability from profit optimizing their inventory — that’s over $20 million in profit improvement for every $1 Billion in sales.

The Proof Is In What Our Clients Say

“The 4R inventory management system has been absolutely terrific for Crate and Barrel and responsible for significant improvement in our performance.” Gordon Segal Chairman/Founder, Crate&Barrel

“4R’s store and DC inventory solutions have helped us drive significant improvements in our inventory efficiency and in-stocks over the last two years. 4R’s helped us drive in-stocks from the low 90% range to 96.5% while simultaneously increasing turn from 3.1 to 3.42. The service based solution gave us an unprecedented level of connection between our inventory management decisions and their impact on our business.” Tony Truesdale President & Chief Merchant of The Vitamin Shoppe

“Being a compelling place to shop means having the right mix of product in the stores
at the right time for our customers. 4R’s profit optimized store inventory service has improved our ability to maintain inventory levels that satisfy customer needs better and are more profitable for Family Dollar.”
Bryan Causey
Senior Vice President—Planning, Allocation and Replenishment
Family Dollar Stores

 

What Is PROFIT OPTIMIZED INVENTORY & How Is It Different Than Legacy Solutions?

PROFIT OPTIMIZED INVENTORY starts with the concept that retailers are investors—they invest in their inventory and the purpose of that investment is to make a profit. And the key decisions that affect profitability are how much inventory to buy, where/ when to position that inventory and how to price it on exit.

From that concept, 4R designed the next step in inventory and supply chain management. 4R’s PROFIT OPTIMIZED INVENTORY solutions balance the cost of inventory against the cost of NOT HAVING inventory (lost sales/margin). In doing so, 4R provides its clients with recommended inventory levels that will make the retailer the most profit. Whether that decision is for a short-life fashion/seasonal product or a long-term replenishment basic, in a store, at the DC or with a vendor order, 4R provides its customers with the most profitable answer to the question “How much inventory is enough?” right down to the item, store and week.

While existing systems don’t provide an answer to the question “How much inventory is enough?” they do provide tools that help retailers hit various inventory metrics/targets. Generally, these metrics are:

1. Average sales/demand based: basically setting inventory to some multiple of average sales (weeks of supply);
2. Variability in demand: by looking at variation in demand, some systems help retailers set inventory to service a certain level of demand or in-stock rate;
3. Optimized service levels/in-stocks: algorithms that find the lowest cost of inventory that meets a certain in-stock rate or service level.

None of these approaches/metrics directly address the question “What inventory levels (by item, location and week) will generate the most profit?”

As a result, existing legacy systems leave it to the retailer, in a hit-or-miss fashion and by experimenting on their business, to try and find the inventory levels that are most profitable.

4R Systems’ revolutionary PROFIT OPTIMIZED INVENTORY solution aligns retailer inventory and supply chain to drive profitability. By providing a profitability map to key inventory and supply chain decisions, 4R helps retailers break a never ending cycle of inventory management changes in the search for a better inventory model.

Ultimately, by getting a PROFIT OPTIMIZED INVENTORY plan in place, retailers are making more money by providing their customers with better service levels and a predictable in-store experience, critical elements of building a strong customer franchise.

How do you get started on Profit Optimizing your inventory?

The first step to get started is to contact us. Not only will you learn more about how 4R solutions work, we’ll share with you how our models and analytics will change the efficiency of your inventory and the profitability in your business. Our consultants will spend time understanding the uniqueness of your business and translating those points into our solution. And we’ll also work with you to build a great, fact-based business case.

4R’s proven three-step process (evaluate, prove, implement) will use your data to build the business case and demonstrate the ROI of profit optimizing your inventory.

1. In the evaluation phase, 4R analyzes your historical data to estimate the profit improvement that can be had from profit optimizing inventory. We’ll learn about specifics of your business that need to be addressed in generating a robust inventory model and make sure that the evaluation reflects those unique attributes;
2. In the proof stage, we’ll jointly pilot the 4R solution on part of your business and rigorously measure the performance of test stores in comparison to the rest of your chain, confirm the results of the evaluation phase and provide a strong foundation to rollout;
3. In the last step, implement, we simply start applying 4R profit optimized recommendations to all stores, DCs and items.

With 4R’s software-as-a-service (SaaS) model, clients have gone through the entire process in as little as 6 months. Since we leverage existing infrastructure and systems, simply replacing key data with 4R’s profit optimized recommendations, there is relatively little systems changes, little/no retraining of staff and minimal implementation risks.